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Hanesbrands' (HBI) Q1 Earnings in Line; Raises FY Outlook - Analyst Blog

Zacks Equity Research
Updated

Hanesbrands Inc.’s HBI first-quarter 2015 earnings per share of 22 cents came in line with the Zacks Consensus Estimate and jumped 16% from the prior-year quarter.

Year-over-year earnings growth was driven by strong sales and higher margins, backed by the success of the Innovate-to-Elevate strategy. The strategy focuses on value-added, higher-priced and higher-margin items that can be supplied at lower costs. Acquisitions also drove higher earnings and sales during the quarter.

The adjusted earnings per share exclude pre-tax charges of $43 million in both the first-quarter 2015 related to acquisitions and other activities.

 

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Hanesbrands Inc. - Earnings Surprise | FindTheCompany

 

Revenues and Operating Profits

Quarterly revenues rose 14% to $1.21 billion, driven by strong sales growth in the International segment. Sales marginally lagged the Zacks Consensus Estimate of $1.22 billion. On a constant currency basis, sales increased by 15%. Foreign exchange had a negative impact of $13 million in the quarter.

The DB Apparel business (DBA) — acquired in Aug 2014 — contributed $184 million to total sales. The business is currently being integrated into Hanesbrands.

DBA is a Europe-based intimate apparel company which is expected to be accretive to fiscal 2015 results. The buyout is in accordance with Hanesbrands’ acquisition strategy as DBA sells intimate apparel — one of its core categories. The takeover has opened several opportunities in Europe for Hanesbrands.

Gross profit increased 25.1% to $446.23 million. Gross margin inflated 300 basis points to 38.1%, with DB Apparel contributing approximately 190 basis points of the increase. Adjusted Operating profit went up 16% to $133.0 million year over year due to higher operating profit in the international segment. Operating margins increased 90 basis points to 9.1%.  

Segment Details

Innerwear: Net revenue slipped 4.4% year over year to $546.2 million due to significant reduction in short-term retail inventory of basics. However, Operating profit increased 13% driven by Maidenform synergies and benefits from the Innovate-to-Elevate strategy.

Activewear: Sales went up 1.2% from the year-ago period to $298.1 million as strong growth in Gear For Sports and Hanes Activewear brands were partially offset by softer results at the Champion brand. The Champion brand is likely to gain more shelf space in the second quarter and therefore did not have a material impact on the first-quarter results. Operating profit slipped 2.9%, driven by higher administrative expenses during the quarter.

International: This segment witnessed 157.4% surge in sales to $283.2 million despite the negative foreign currency impact. On a constant currency basis, sales went up in double digits in Japan and Latin America. Operating profit skyrocketed 170.2% driven by higher sales volumes.

Direct to Consumer:Sales slipped 2.6% to $81.5 million. Operating loss widened to $2.3 billion from $1.3 billion in the previous year.

Other Financial Updates

On Apr 6, Hanesbrands completed the takeover of collegiate logo apparel seller, Knights Apparel, for $200 million in cash on an enterprise basis. The acquisition was funded through cash on hand and short-term borrowings on its revolving credit facility. The acquisition was announced on Feb 25, 2015.

Fiscal 2015 Guidance Raised

The company is optimistic about the Knights Apparel acquisition and raised the full-year 2015 growth expectations. However, Hanesbrands expects negative currency effects to continue into fiscal 2015.

Hanesbrands expects earnings to be in the range of $1.61 to $1.66, compared to previously announced range of $1.58 to $1.63.

The company expects net sales in the range of $5.90 to $5.95 billion as against $5.775 to $5.825 billion expected previously. The outlook represents 6% to 6.2% growth from fiscal 2014. While Hanesbrands expects the Knights Apparel buyout to contribute approximately $160 million in sales, it expects deterioration in foreign exchange rates to reduce sales by $35 million during the year.

Operating profit is expected in the range of $853 to $873 million, up from the previously expected range of $835 to $855 million. The Knights Apparel takeover is expected to contribute approximately $18 million to operating profit.

Hanesbrands has a Zacks Rank #3 (Hold). Some stocks in the same sector that are performing well include GIII Apparel GIII, Cherokee Inc. CHKE and Perry Ellis International Inc. PERY. All the stocks carry a Zacks Rank #2 (Buy).


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